Homeowners with poor credit scores can refinance their homes

On Behalf of | Jun 12, 2020 | Refinancing

Many Georgia homeowners find themselves looking into the prospect of refinancing their mortgages as interest rates are currently at historic lows. Not everyone has perfect credit, though. The good news is that your score may not prevent you from moving forward with the refinance process.

Most homeowners who refinance their mortgages do so to lock in a lower interest rate. By doing this, they can save up to a few hundred dollars per month on their mortgage.

Lenders will take your credit score and mortgage type into account when deciding whether to allow you to refinance your mortgage with them.

Government-backed lenders often allow borrowers to refinance their mortgages with a score of 580 or less. Most private ones require borrowers to have at least a 620 to qualify for a conventional refinance.

Federal Housing Administration (FHA) loans are quite popular among borrowers with lower credit scores. The government agency offers a cash-out, rate-and-term and streamlined refinancing option.

Borrowers who opt for the FHA’s cash-out refinance program are often allowed to take out home loans that exceed their original loan amount. Homeowners generally can pocket the cash for the difference between the two. Borrowers must have built up 20% or more in equity in their house to qualify for this program.

The rate-and-term refinance program is ideal for individuals looking to turn their conventional loan into an FHA one. Applicants for this refinancing are generally required to have their income and credit score verified as part of the program’s approval progress.

The most straightforward FHA refinance program is the streamline one. Lenders are required to complete minimal paperwork to qualify for this refinancing.

Borrowers must show proof that they’ve made 12 month’s worth of timely mortgage payments before being allowed to move forward with any of these FHA programs.

Other government programs that lenders with lower credit scores may qualify for include U.S. Department of Agriculture or U.S. Department of Veterans Affairs refinance loan programs.

While many lenders, including your own, may be willing to allow you to refinance the mortgage on your Augusta home, the interest rates that they expect you to pay are likely to be less competitive the lower your credit score is. An attorney can help you identify programs that you may qualify for in Georgia and then negotiate with your bank on your behalf.